DUAL SUPPLY CHAIN’ SYSTEM

The case discusses the dual supply chain system practiced by Italy based clothing company Benetton Sp A (Benetton). During the 1980s and early 1990s, Benetton was the world leader in the casual apparel market with stores spread across the world. The company was well known for its postponement strategy, wherein the dyeing of the garment was postponed till the colors in vogue for the season were identified. By the late 1990s, Benetton could not compete with the fast fashion retailers which were launching several collections a year, as against only two collections brought out by Benetton. In order to meet the changing demands of the customers, Benetton revamped its supply chain, and opted for a Dual Supply Chain system.
In this system, production was carried out in Asian and European countries, depending on the time required to market the product. The dual supply chain focused both on pull as well as push based demand. After implementing the new supply chain system, Benetton was able to launch five collections in each season, with some of the collections incorporating the latest trends. The case explains the postponement strategy of Benetton, the supply chain problems it faced in the late 1990s and the Dual Supply Chain system.

Benetton Moves to Fast Fashion
In 2004, Italy based clothing company Benetton SpA (Benetton) formally adopted the ‘Dual Supply Chain’ system.
The new system was a top down, pull driven supply chain, which enabled the company to bring in more products on to the store shelves more often, in accordance with the growing demands of the customers and changing fashion trends.
Through this system, Benetton was able to delocalize some of the production to countries, where Benetton had earlier produced all its products.
Benetton was the world leader in the casual apparel market during the 1980s and the early 1990s.
The company’s success was attributed to techniques like postponement, where the dyeing of the final product was postponed as long as possible to dye it in the colors that were in vogue during the season. By the early 2000s, Benetton had to face tough times; its new collections were limited to just two a year – not enough to sustain the interest of the consumers, who were getting used to fast fashion – fashion that changed every week – provided by the likes of Zara, H&M and GAP. Benetton recorded losses in 2002, mainly due to limited collections, and growing competition. Under the ‘Dual Supply Chain’ system, the main tasks like design, planning and coordination were carried out in Italy, while production was carried out in locations in Europe and Asia.
Apart from Benetton’s regular twice-yearly new collections, Benetton began to bring in several new collections at different times of the year to meet the changing fashion trends. The time required to restock the stores was reduced and new collections were brought in every four weeks. Commenting on the importance of an efficient supply chain management for Benetton, The Wall Street Journal wrote, “Replenishing its racks with new clothes as often as once a week is helping the Benetton brand get its groove back after years in the retail doldrums. Its success underscores how logistics can be as important as style in the increasingly cutthroat business of mass-market apparel.”

Background Note
At the end of the Second World War, in Ponzano Veneto, a small town 30 kilometers north of Venice, Italy, Luciano Benetton (Luciano) left school, after the death of his father, to work in a clothing store.
Soon, he started a small business with his brothers Carlo and Gilberto, and sister Giuliani, and started producing sweaters, in several bright colors. The bright sweaters immediately attracted the attention of consumers, who were bored of outfits in plain colors.
Initially, he sold these sweaters door-to-door. In 1956, the Benettons launched their own line of sweaters under the label Tres Jolie.
They started Benetton Group as a partnership in March 1965. In the same year, they opened their first store called ‘My Market’ which sold several collections including the newly introduced Benetton label.

The Operations
Benetton operated a three-tier model. The first tier consisted of suppliers of raw materials and unfinished products, and production plants. The second tier had contractors and sub-contractors, and the third tier had retail outlets spread across several countries, which operated as franchisees and agents.

Production and Distribution
Benetton operated through production facilities which produced garments in high volume and with few varieties. In 1984, Benetton planned to invest in advanced production facilities in Castrette, Italy. The plant became fully operational in 1986. However, investments in this plant continued though the 1990s, leading to an increase in production capacity. By the year 1999, the plant covered an area of 190, 000 sq. meters, and capacity to produce up to 100 million units every year. By 2006, the automatic sorting system in the plant, could sort garments for more than 5, 000 Benetton outlets.

Retailing
Benetton functioned through a licensor-licensee relationship, where the needs of the retail market were catered to by agents, who obtained a license from Benetton to sell its products. The agents were responsible for recruiting retailers, showing Benetton’s collections in a particular region in a country, processing retailer orders, selecting retailer locations, training, and letting the company know the latest trends in a particular region.

The Postponement Strategy
Every year Benetton came out with two collections, one for each season (spring/summer and fall/winter). The collection primarily comprised of a base collection, which included the classic items, and garments according to the prevailing trends. For collections that were to reach the stores in January every year, the final designs were decided in March of the previous year. The store owners could place orders for the new designs till July. In July, Benetton began producing the clothes, considering the first 10% of the orders.

The Problem
During the late 1990s, Benetton failed to keep pace with the changing fashion industry. Compared to the competitors, Benetton lacked clear positioning and could not maintain the ‘cool’ factor with which it was earlier associated, resulting in dwindling profitability.
That was the time when ‘fast fashion’ had emerged and made a huge impact across Europe. Buyer behaviour changed drastically, and the customers, especially younger customers, started demanding new products more often – in some cases every month. For Benetton, the challenge was to address the needs of this segment of customers.

The Dual Supply Chain
In 2004, Benetton began implementing its dual supply chain model. A dual supply chain has a better ability to respond to changes in demand and to balance activities like production, sales, and product design. Using this system in Benetton, production was carried out in different locations depending on the time required to market the product.

The Results
The dual supply chain helped Benetton offer new products to its customers on a continuous basis. The company was able to maintain the sales momentum even after the season by minimizing the time to marked and offering products based on demand pull.

Case Questions:
1.What are the supply chain operations of Benetton? Analyze.

2.What is the postponement strategy of Benetton? How was it applied?

3.What is the production and distribution process followed by Benetton? Discuss

4.How will you critically evaluate the ‘Dual Supply Chain’ of Benetton?

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